Don't Just Take It, Manage It: Your 2026 RMDs
For many retirees, Required Minimum Distributions (RMDs) are viewed as a mandatory administrative chore, a box to be checked to satisfy the IRS. However, viewing your RMD solely as an obligation is a missed opportunity.
Whether you need the cash for living expenses or not, how and when you take your distribution can significantly impact your tax bill and investment longevity. By reviewing your strategy now, rather than waiting until the end of the year, you open the door to proactive planning options.
Here is a guide to optimizing your RMDs for 2026, based on current regulations and market conditions.
1. Market Performance
Most people automate their RMD to occur at the same time every year, but market performance should also impact your schedule.
When Markets are Up: If your account value has risen significantly, consider accelerating your withdrawals or taking a lump sum early in the year. This allows you to lock in gains at high share prices.
When Markets are Down: If your portfolio has dipped, consider delaying your distribution until later in the year or spreading withdrawals out over several months. This strategy mitigates the risk of selling assets at lower share prices, giving your portfolio time to potentially recover.
2. Using RMDs for Withholding
One of the most underutilized strategies is using your RMD to manage your wider tax liability. Because RMDs are taxable income, you can earmark up to 100% of the distribution for federal and state tax withholding.
Roth Conversions: If you plan to convert traditional IRA funds to a Roth IRA in 2026, you will incur a tax bill. You can use your RMD withholding to pay this liability (you must satisfy your RMD requirement before any Roth conversion can take place).
Portfolio Income: If you have significant taxable income from other sources such as capital gains, dividends, or interest; increasing the withholding on your RMD can help you avoid under-payment penalties without the hassle of making quarterly estimated tax payments.
3. The QCD Advantage
If you are charitably inclined and over age 70½, a Qualified Charitable Distribution (QCD) can be more tax-efficient than simply donating cash.
How it Works: You can direct up to $111,000 of your RMD directly to a qualified charity.
The Benefit: Unlike a regular withdrawal, a QCD is excluded from your Adjusted Gross Income (AGI). Keeping your AGI lower can have positive ripple effects on other areas of your financial plan, such as Medicare premiums or tax credits.
4. Special Considerations for 2026
Excess Cash Flow: If your RMD amount exceeds what you need for daily living expenses, do not let the excess sit idly in cash. Consider transferring the net amount to a non-qualified brokerage account for re-investment to keep your wealth working for you.
Inherited IRAs: If you have inherited a retirement account, be mindful of the SECURE Act rules. Non-eligible designated beneficiaries generally must withdraw the entire account balance within 10 years of the original owner's death. Failing to plan for this can result in a massive tax balloon payment in year 10.
RMDs are complex, but they are also flexible. To ensure you aren't leaving money (or opportunities) on the table, we recommend a brief review of your 2026 strategy. Schedule yours today!
